Overtime rule suspended: What should employers do next?

Nov 28, 2016

In recent months, many companies have been preparing for the new overtime rule, a decision made by the U.S. Department of Labor to raise the threshold for overtime pay to $47,476 per year, a significant raise from the current threshold of roughly $24,000. Additionally, the new rule would continue to raise the threshold every three years, with an expectation to increase to over $51,000 per year by 2020.

To prepare for the rule change, some employers chose – or were in the process of choosing – to raise salaries above $47,476 to avoid paying overtime to employees in executive positions or to those with professional duties. Other employers were in the processes of making their employees non-exempt. Those companies would need to begin tracking hours so that the company can either limit weekly hours to 40, or pay time and a half for any hours worked above 40.

On Nov. 22, Judge Amos Mazzant, of the Eastern District of Texas filed an emergency injunction against the new rule, effectively suspending its implementation indefinitely, until a closer examination of its legality can be conducted. This decision has left many HR professionals in limbo. Companies already in the process of complying with the rule change have had to stop and reassess what their next steps will be.

The duties test
While much of the focus on the new rule is directed at the salary threshold, it isn’t the whole picture. In fact, the opponents of the bill have taken issue with the idea that the DOL is effectively replacing the duties test with a salary test. The duties test would exempt employees from overtime if their duties are deemed to be executive, administrative, or professional. In other words, an administrator making $33,000 per year with benefits would be exempt from overtime, while a cashier making the same amount, without benefits, could still potentially qualify for overtime pay.

The new rule, in the eyes of its opponents, would do away with any such requirements. No matter what the employees’ responsibilities or duties are, they would be exempt from overtime pay only if their yearly salary exceeded $47,476. Of this issue, Mazzant wrote, “If Congress intended the salary requirement to supplant the duties test, then Congress, and not the Department, should make that change.” The judge also suggested that, because other parts of the new rule are, in his opinion, unlawful, then the entire mechanism is unlawful and must be put on hiatus while the court determines where the DOL’s authority stands.

HR outsourcing means fewer headaches for employers
Many companies might feel whiplashed after the court’s decision. One moment they were preparing for significant changes to their payroll infrastructure, and in the next moment, everything came to a standstill. Companies with their own HR staff might be feeling the pressure right now to stay on top of everything. However, those that outsource their HR responsibilities, especially payroll, may be in a better position.

Making decisions about payroll changes is complicated on its own, but implementing those changes can take up valuable time that could be better spent on growing the business. By leaving the implementation of these changes up to an HR outsourcing firm, companies can avoid the hassle and chaos that comes with keeping on top of constant changes in government regulation.

It’s still to be seen whether or not the new rule will come to pass, if it will appear in a modified condition, or if it’s gone for good. If changes do eventually happen, they could happen fast. By outsourcing HR responsibilities, managers can focus on tasks that keep the company operational and healthy.